Statements on Introduced Bills and Joint Resolutions - S. 2931
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. CORNYN (for himself, Mr. MCCONNELL, and Mr. MCCAIN):
S. 2931. A bill to enable drivers to choose a more affordable form of auto insurance that also provides for more adequate and timely compensation for accident victims, and for other purposes; to the Committee on Commerce, Science, and Transportation.
Mr. CORNYN. Mr. Chairman, on behalf of my co-sponsors, Senators MCCONNELL and MCCAIN, I rise today to introduce legislation that I believe has the potential to improve profoundly the lives of millions of Americans across the country.
The Auto Choice Reform Act of 2004 offers a real solution to a very real problem faced by those of us who drive every day-the high cost and inadequate compensation of the current tort and liability automotive insurance system.
The tort system ought to ideally compensate people injured by negligence and deter others from acting irresponsibly. With respect to auto accidents, the system fails miserably on both counts.
Numerous studies over the past 75 years document just how poorly the tort system compensates injured people. Almost one-third of injured people recover nothing at all, and many injured persons who do recover compensation must wait years to receive payment from the other person's insurer.
Worst of all, people with minor injuries recover compensation far in excess of their actual losses while many people with serious injuries are grossly underpaid. The RAND Institute for Civil Justice has found that people with economic losses between $500 and $1,000 recover on average 2½ times their economic loss. This is largely due to the fact that it is cheaper for an insurer to pay a questionable claim than to pay the costs of going to court, where they risk paying a multiplier of economic damages for pain and suffering.
The perverse incentives generated by pain-and-suffering damage awards also cause rampant fraud and abuse in auto insurance claims. A study by the RAND Institute for Civil Justice confirms that between 35 and 42 percent of medical costs claimed in auto accidents occur in response to the incentives of the tort liability system. In other words, more than one-third of all medical losses claimed in auto accidents are fraudulent or exaggerated-attempts to nab the pain-and-suffering jackpot.
On the other hand, people with the highest economic losses, in excess of $100,000, recover only 9 percent of their economic loss on average. To add injury to insult, that amount doesn't even include their lawyers' standard one-third fee. Because most drivers don't carry enough insurance to even pay this level of economic loss, particularly after attorneys' fees are deducted, people with the most serious injuries rarely recover anything for pain-and-suffering.
In short, we would be hard pressed to design a worse compensation system if we tried.
Indeed, the system is so bankrupt that lawyers in the auto insurance litigation currently consume more than 25 cents out of every premium dollar spent, an amount that is significantly more than the amount received by those actually injured for medical bills and lost wages. In total, more than $16 billion went to lawyers in 2001 for automobile related personal injury cases.
What about deterrence? Perhaps it is worth paying for a poor compensation system if people are deterred from driving badly, thereby avoiding injuries in the first place. Some studies have made this argument but the most comprehensive analysis of accident data, again by the RAND Institute for Civil Justice, has found that the tort system has little or no deterrent impact. This conclusion is a logical one. If a driver is not deterred by the threat of personal danger from reckless driving, then surely that driver is not deterred by the penalty for reckless driving-simply a modest increase in one's insurance premium.
The current system is also unnecessarily expensive, as is clearly demonstrated by the fact that the Joint Economic Committee estimates that switching to the new Personal Injury Protection system, discussed below, which relies primarily on the payment of economic losses for all injured persons without regard to fault and largely without the need for lawsuits, could save drivers a total of $48 billion a year in unnecessary premiums.
Excessive premiums disproportionately impact low income Americans and welfare recipients. Families in the bottom 20 percent of incomes who buy auto insurance spend 16 percent of their household income on that insurance. That percentage is seven times the proportion that families in the top 20 percent spend. Lower premiums would enable many low income workers to afford the cars they need to travel to better-paying jobs. The Auto Choice reform legislation we are proposing today would reduce premiums for low income people by more than it would reduce them for the average driver-both in terms of percentages and often in terms of absolute dollars. And all drivers would see significantly lower premiums.
Auto Choice is designed to allow consumers to choose the type of insurance that meets their needs and to opt out of the pain-and-suffering litigation lottery associated with the current system.
Essentially, drivers are permitted under Auto Choice to choose a new Personal Injury Protection, "PIP", Insurance under which they would be compensated without regard to fault for all economic losses up to their policy limits by their own insurance company, with nothing available for pain and suffering. Alternatively, for those who remain in the current tort system, they will select a small amount of additional coverage similar to an uninsured motorist for situations involving another motorist that opted for the PIP system-a premium offset by the savings realized by everyone as a result of the overall shift away from the lawsuit system.
The system does not abolish lawsuits. By design, there will be reduced incentives to head straight to court, but the right to sue remains firmly intact-as injured parties not fully compensated can sue to recover excess economic losses over and above that covered by the PIP coverage and other sources of first party insurance. They can also sue for all damages, including pain and suffering, when the accident is caused by a driver who is drunk or on drugs.
In summary, if a driver wants to maintain the possibility of recovering for pain and suffering, he will stay in essentially the current system. On the other hand, if he wants to opt-out of the current system in exchange for lower premiums with prompt compensation for economic losses-then he instead will choose the personal injury protection system.
The idea is not a new one. Indeed, this idea has been discussed-and even introduced in one form or another-for over thirty years now. Several versions of Auto Choice reform have enjoyed broad support on both sides of the aisle. Senator Daniel Patrick Moynihan, Steve Forbes, Michael Dukakis, Mayor Rudy Guliani, Congressman Dick Armey-just to name a few-have all opined in support of giving drivers a way out of the current ineffective system.
The time has come for Congress to act. The results of our action are clear and tangible: were Congress to enact Auto Choice Reform legislation now, motorists would stand to save as much as $48 billion next year.
Think about that for just one moment. Over 5 years, Americans would be able to save almost $250 billion-savings tantamount to a massive tax cut with absolutely no negative impact to the Federal deficit.
And what does this mean for the average American? The average American family with two cars will be able to save nearly $380 a year, according to Joint Economic Committee estimates.
Particularly encouraging is the effect these savings will have for low income families. Lower auto insurance premiums will make owning a car more affordable for poor Americans, allowing them to find and keep better-paying jobs and have longer commutes. Auto Choice would allow low-income drivers to save almost 37 percent on their overall automobile premium. For a low-income household, these savings are the equivalent of 5 weeks of groceries or nearly 4 months of electric bills.
Auto Choice Reform can provide immediate and real relief for average, mainstream American families across the country.
Those are real savings, resulting from a sound system that offers legitimate choice-a choice between guaranteed upfront savings on insurance premiums on one hand; and on the other, the right to sue for non-economic damages such as pain and suffering in the event an accident one day occurs.
For most Americans, I believe the choice is an easy one. Unfortunately, for most Americans today, that choice is unavailable.
The Auto Choice Reform Act of 2004 gives the American people that choice. Let's get government back to doing what it ought to-protecting the rights of all Americans to have the freedom to make choices about how they live their lives.